Thyrocare Technologies Limited (539871) Earnings Call Transcript & Summary

Good evening, all. On behalf of Nomura Securities, we would like to welcome all to Thyrocare Technologies Limited 3Q FY '21 Earnings Call. Today, from the Thyrocare management team, we have with us Dr. A. Velumani, Chairman and Managing Director; Mr. Arindam Haldar, CEO; Mr. A. Sundararaju, CFO and Executive Director; Mr. Ramjee Dorai, Company Secretary; Mr. Sachin Salvi, Vice President, Finance; and Dr. Caesar Sengupta, Vice President, Operations. So now without any further delay, I would like to hand over the call to Mr. Sachin Salvi, to give an update on the financials for Thyrocare. Over to you, Mr. Salvi.

Thank you, Prateek, and good evening. Thank you, everyone, for joining our post-results conference call for quarter ended 31st December 2020. I'll briefly update you about the key highlights of quarter 3 financial performance. First, I'll start with revenue from operations. Our revenue from operations for the current quarter on a stand-alone basis have increased by about 35% Y-o-Y. Our consolidated quarterly revenue for the current quarter has increased by about 31% Y-o-Y. Our Q3 pathology revenue of INR 132.17 crore consists of INR 27.34 crore of COVID RT-PCR revenue. Our pathology revenue, excluding COVID RT-PCR for the current quarter, has grown by about 7-odd percent in Q3. This despite our -- this despite of the lean period on account of festive season, which we generally evidence in every year. We have seen very healthy revival in preventive care business too in the current quarter. Our business in pathology segment as well as radiology segment also has revived well in the current quarter as compared to quarter 2. Our Q3 radiology revenue is at INR 6.16 crore. Again, as I have said, we have revived very good in terms of revival in the current quarter as far as the radiology segment is concerned. Our radiology revenue has revived to the extent of 78% when I'm comparing Q3 numbers of the last financial year. As far as EBITDA margin is concerned, our stand-alone EBITDA margin on an adjusted basis, normalized for the nonoperating expenses, stands at 37%. Our consolidated EBITDA margin stands at 36%, again, adjusted and normalized for the nonoperating expenses. Our stand-alone EBITDA margin of INR 49.16 crore has grown by about 15% Y-o-Y. Similarly, consolidated EBITDA margin have grown by about 13% Y-o-Y. We have seen increased employee benefit expenses. When I'm comparing with a percentage of the top line, it has increased by about 4% sequentially -- on a sequential quarter basis. This is on account of additional field marketing resources, which we have deployed in the current quarter. Our COVID RT-PCR revenue has actually contracted by about 40%, though the volume has increased by 6%, mainly on account of the stringent prices controls, which have been implemented by most of the state governments. In terms of volumes, we have processed in the current quarter, about 4.7 million samples. Same quarter last year, we have processed about 4.5 million. We have performed 4,691 scans under our radiology division that is under Nueclear Healthcare Limited. Same period last year, we have processed about 5,772 scans. We have done about 292,321 COVID RT-PCR test in Q3 alone. And we have done about 1.61 lakhs COVID antibody tests in the current quarter. With this brief highlights, I'll pass it on to my CEO, Mr. Arindam Haldar, for business updates to the investors. Thank you.

Thank you, Sachin, and good evening to everyone on the call, and thank you for joining us today. We are past year 2020. And with the early signals that are coming in, I do hope this new year brings in happier news, health and prosperity for all of you. We are thankful that India did not see another peak after the festive season as was widely proclaimed. And maybe it's our inherent immunity or maybe it's the low mean age of the country, case counts are at an all-time low. Recovery rate is now higher than the new case count every day, and mortality rate hasn't even crossed 1.5%, far lower than many other diseases prevailing in the country. In between, Thyrocare has completed another successful quarter, sustaining an above par revenue growth, which you heard of, of 35% for stand-alone pathology business and 31% at consolidated level, and our stand-alone EBITDA stands at 37% for path and at a consolidated at 36%. You may recall it that our path business grew by 38% year-on-year in quarter 2 of FY '21. And while the growth percentage has dipped slightly by 3 percentage points, I'm happy to announce that our non-COVID business, which stands all COVID and COVID-related tests, have come back to last year's level, which was in last quarter around 80% against the same quarter. In fact, our COVID and COVID-related test consolidated revenue has dipped by 47% in sequential quarter, which is quarter 3 by quarter 2, whereas our non-COVID business has demonstrated a significant and robust 17% growth over the trailing quarter. This augurs well for our future periods. Our COVID RT-PCR revenues have come down significantly. So despite our RT-PCR volume going up by 6%, our revenue realized fell by 43% in sequential quarter. Thanks to the drastic price controls that we all know about. This had an adverse effect on our cost of material consumed as a percentage of revenue, which further impacted our EBITDA. And our stand-alone EBITDA grew by 15%, and our consolidated EBITDA grew by 13% against the same period last year. Let me now give you some more color on some significant business updates. First, let me talk about the preventive care business. Aarogyam is the leading brand of preventive care packages and profile in the country, and this was severely impacted during peak pandemic. We have seen a significant revival. And in quarter 3, Aarogyam has contributed to 46% of our non-COVID business. In post-COVID normal, we believe that people's attitude towards assessing self-immunity and doing frequent preventive checkups will increase, and we are very well poised as a company to cater to that need at an affordable cost. Talking about processing labs, as a company, we used to have one large centralized processing lab at Navi Mumbai. Our strategy, as spelt out by our Chairman in last quarter, was to have 3 zonal processing lab in north, south and east of India. I'm happy to announce that our zonal processing lab at Delhi NCR has commenced operation. Our south zonal lab at Bangalore is expected to commission in quarter 4 and Kolkata zonal processing lab in east in quarter 1 of next fiscal. Apart from the zonal labs, we are also increasing regional processing lab span. We are ready to commence operation at Lucknow and Kochi in quarter 4. We are also in the process of identifying few other cities, which has volume potentials for setting up more regional processing laboratories. Now talking about sales and marketing structure. In the last quarter, we initiated putting in a place field sales executives and managers across the country. This was, again, our first for Thyrocare as we never had field-based marketing executives. We have with us today more than 120 member team who have already started visiting clients, and we are constantly adding to that strength. We have made some early progress over the last 40 days, where we could add more than 50 Thyrocare service providers, that's the name we give to our franchisee collection centers, which is 10% of our base, and we have an aggressive plan to double our presence in this segment over this calendar year. As you know, typically, collection centers takes about 9 to 12 months to stabilize. So I believe this aggression in improving our presence through collection center will bear us results by end of 2021 and in early part of calendar 2022. On the radiology business, after lockdown, most of our PET-CT centers have become fully functional and seeing walk-ins. Revenues have increased by 30% in sequential quarter, while we are yet to go back to last year's level. However, we are seeing strong recovery and hopeful of improving further in current quarter. In summary, as we look forward, I believe that with enhanced focus on health and health infrastructure in the country as was very well elaborated by our Honorable Finance Minister, private health care and specifically diagnostic industry will see positive uptrend going forward. The salience of COVID test to total may come down, but not go away. And the rest of the business, especially preventive segment, we'll see significant growth. Thank you very much. I'll hand it back to Sachin to take the Q&A session forward.

[Operator Instructions] The first question is from the line of Sriraam Rathi from ICICI Securities.

Sir, firstly, one thing is that, I mean, if I just look at the revenue, excluding COVID and antibody test, so that has grown around 1%, but there has been a volume drop of around 5% and realization growth of around 7%. So this realization growth, I mean, INR 232 per sample, I mean, is it -- this seems to be very high in the quarters in the past. Is this sustainable or anything in particular has led to this?

Sriraam, can you just repeat the question once more. There was a little bit of disturbance, and we couldn't hear you properly.

Okay. Sure, sir. So basically, I was just asking that realization in this quarter seems to be very high. If I exclude the COVID and antibody both the test, it comes around INR 232 per sample, which is like, I think, the highest in the past 10, 12 quarters. So anything specific to that? Or I mean, how should I look at this number going forward?

Sure. So as I told you, our preventive business has been growing ahead. And our realization in our preventive packages is higher than stand-alone test. I do believe that there will be uptrend towards people in India, taking more and more preventive packages, and we are quite confident about sustaining this kind of revenue in the future.

Okay. And we have not taken any price increase as such, right, sir?

No, we have not taken any price increases.

Okay. Sure. And sir, just on the second, I mean, which you alluded in the opening remarks, about the collection centers that you've started and more people you have taken. So just more -- I mean, if you can throw more light on that, I mean, what kind of collection centers? Will it be in the Thyrocare's name only? Or it will be like outsourced to some third party? How this will take off?

So these are what we call Thyrocare service provider. These are branded collection centers. These are franchisee operated. And these are branded exclusive centers for Thyrocare, who will be doing collections alone, which will go to the nearest processing lab. And for higher-end test, it will come to the zonal or the centralized processing labs.

Okay. Okay. So I mean, is it fair to assume that this could be a move towards becoming -- going towards B2C also in addition to what we have been doing?

Not necessarily. We do have about 500 -- close to 500 collection centers, which have been operating, and that's where I talked about the 10% increase, having 50 new codes coming in. Here, our main focus is still working with the franchisee partner. So it is the franchisee partners who are still the face to our customer. We still remain the kitchen. So our front-end is the franchisee partners. Our accessibility in the market will increase via this franchisee.

Okay. Got it. And just one question to Sachin. I mean this personnel cost, which has increased in this quarter, is this the run rate that we should take going forward?

No. As sir has said in his opening remarks, we already have about 120, 150 people working on the field, and the team is set up. Now this will not increase in that proportion, unless we are seeing a significant increase in the revenue or unless we are seeing -- unless we require new people to hire.

Yes. So within this quarter of INR 17 crores revenue -- sorry, expense, that is something that is a normal rate now?

Yes. Yes. Yes. That would be something normal thing.

The next question is from the line of Rushabh Sharedalal from Pravin Ratilal Share and Stock Brokers Limited.

Just wanted to understand, I mean, presently, our COVID RT-PCR revenues INR 27 crores in the quarter, which accounts to almost...

Sorry, you are not audible.

Am I audible now?

Yes.

So I just wanted to know that the current RT-PCR revenue is INR 27 crores, which roughly accounts for 20% of the total revenue. So what kind of a product mix do you see going forward, let's say, 2 or 3 quarters down the line? I mean, could it still account for at least 5% to 10% of our top line?

well, I can talk about the past because I wish there was someone who can exactly predict which direction COVID will go. Last quarter, all our COVID and COVID-related tests put together, which is your antigen antibody COVID [indiscernible], all put together had 44% salience. This quarter, it has 24% salience, out of which 20%, as you rightly said, is RT-PCR. Now frankly, I don't think it will become 0. However, whether it will be 5% or 10% or 15%. Frankly, it will be extremely difficult for us to comment on the same. So I won't be able to give you an exact number.

Okay. And just wanted to understand that our COVID revenue does not include the antibody test, right? The antibody tests are included in our actual revenue only. Is my understanding correct?

So in the quarter, about -- yes, so INR 27 crore if you're talking about, that is only COVID RT-PCR. Antibody will be another INR 4-odd crores.

And antibody will keep coming even after COVID has subsided.

It can even go up as well because after you take the second dose of vaccine, the only way to know whether you have developed antibody is to do an antibody test. So directionally, the antibody test can go up as well post April.

The next question is from the line of Chandramouli Muthiah from Goldman Sachs.

First question is back to the point that was made earlier around preventive testing in Aarogyam, maybe there's going to be a shift to that post-COVID. So I think there has been similar commentary coming out from some of your peers as well. So just trying to understand. Aarogyam, I think, historically has been close to 50% of company revenue. So is there a plan to maybe grow that faster now that there could be this sort of shift towards such packages?

See, Aarogyam is clearly a focus area, Chandramouli. And even as we speak, even in the current month, there is a specific focus that we have in one of the Aarogyam profile. And going forward, we'll be keeping that focus on. So definitely, there will be a broader market trend towards preventive and being the market leader in this space, we will play from that strength as well.

Got it. And just a follow-up to that. So I think it looks like there was an earlier question as well around value growth. So historically, I think the industry, we've seen most of the growth being driven by volumes. But it looks like now there might be some -- I don't know how long this period would be, but there might be some value growth coming through potentially because of this shift. So just trying to understand what is your thinking around the pieces that drive growth going forward between sort of value and volume?

Historically, our strength has always been through volume growth. And we always have believed in that if you can grow volumes that gives you sufficient leverage for getting better financials, better profit and hence lower cost. So overall, while that -- there is no specific direction to do any price calls. So we'll still go by volumes. However, the mix will give us better value. More and more preventive tests that we do, it will give better value. Our -- if you look at our client mix, our collection centers give higher revenue per day than the other clients, the small labs [indiscernible]. So with our more and more franchisee centers coming in, if I can double my franchisee business, my average realization there also will go up. I'm also going to some of the high-value clients and with the field team coming in, I'm also targeting some of the hospitals and high-end medical clients. With that coming in, there will be a further flip in some of the better higher price test as well. So overall, yes, there will be a growth, which will be a mix between focus on preventive tests, higher Thyrocare service providers and some high-value clients coming in.

Got it. Got it. That's helpful. Second question is on the COVID testing. So just specifically on RT-PCR, so I think if you back the numbers out, maybe last quarter, the realization was closer to 1,700 for RT-PCR. This quarter it seems slightly less than INR 1,000. So where are we tracking at now? And maybe just related to that, how much -- do we draw a line in the sand saying that below a certain price, it's not viable for us to do the RT-PCR test anymore?

See it's like this. While the prices have crashed and yes, between the quarter 3 and quarter 2, the price crashed even faster probably than the cost came in, but we have been able to rationalize our cost further. So of course, the realization of RT-PCR is going down much more on a day-to-day basis. And that is a trend that is going to be there. We are conscious of our margin standards. Obviously, we'll not take any foolish decisions. But we are very clear that if we can get sufficient volumes, we'll be able to price it much better than any of our competitors.

Got it. Got it. And just final follow-up to that. So I think the previous quarter, we had given -- I think the month of September, the non-COVID business was back to about 93% of normalized levels. So maybe just in the month of December, just first to get an understanding of the exit run rate, is there a similar number that you're able to provide, maybe whether it's like 106% of previous year or something like that?

Yes. So Sachin, how much would be December, be about 105%?

About 105%. So we have already revived. In fact, we are seeing some growth.

The next question is from the line of Rahul Agarwal from InCred Research.

Yes. So I had a couple of questions. Broadly, they've been answered in some manner, but I still want to clarify. When I'm looking at the...

Sorry to interrupt, Rahul. Sorry, your voice is little bit fluctuating.

Okay. Is it better?

A little better, but not very auditable.

Okay.

Yes. Now you've been very clear. Yes.

Okay. So what I was asking was, firstly, on the non-COVID side, when I'm looking at the volume number, and I'm excluding the RT-PCR and antibody here, my sense is it's still not recovered 100%, right? It's about 92% Y-o-Y. Broadly wanted to understand, is the air and road travel restrictions still impacting the B2B volumes? And when do you really go back to your fiscal '20 sample volumes of 19.2 million in what you did in March '20 year, would you go back to that level in '22? Or how do you think about the non-COVID recovery? And I'm excluding antibody here.

Sure, sure, sure. So if you exclude the antibody RT-PCR, all of that, our volume in the last quarter had almost come down -- come back to the last year's level. And in fact, revenue crossed last year's level. December has been better than the overall quarter, and Jan has been better than December. So by that logic, I don't see any reason why by exit of this year, the volume shouldn't come back to the last year's level and revenue ahead.

Okay. Okay. Okay. And secondly, on the -- one participant asked on the pricing for COVID, and obviously, it's gone down and [indiscernible] is even sharper. But broadly speaking, are you making single-digit EBITDA on the COVID -- on current prices? Or you think you're operating at breakeven levels? As you mentioned in the presentation, I think that the price drop has been significant, but we have managed to handle that through stringent controls on negotiating reagent costs and stuff like that. So just wanted to understand a bit of that.

Yes, we are making margin in RT-PCR test, and we have negotiated our cost down further. And we still make comfortable margin in RT-PCR.

Okay. Okay. Great. One small question for Sachin was what's the CapEx done in 9 months? If you could help me with that?

The CapEx figure is around some INR 12 crores to INR 15 crores. I'll give you the exact number in some time. Let me check. But it is about INR 12 crores to INR 15 crores.

Okay. And the full year target? I'm asking this purely because we are spending on zonal and regional labs, that's why I'm asking.

As far as the CapEx for the full year is concerned, it would be in the same level because, as I said, most of the capital expenditure for Bangalore processing laboratory as well as for Kochi as well as for the other Lucknow laboratories already incurred and debited to profit-and-loss account under capital work in progress.

Okay. So this number for fiscal...

Almost, it would be the similar number as on 31st March 2021 as well.

[Operator Instructions] The next question is from the line of Sayantan Maji from Crédit Suisse.

This is Anubhav here. Just a couple of questions from my side. One is on just clarity on the collection centers that you mentioned. Which city exactly did you mention that you're planning to start with these 50 centers?

Can you just repeat that question once more, please?

Yes, sure. I was just asking that which city, when you mentioned about starting with 50 franchisee centers on the collection center side, which city were you talking about?

So this is not a single city. So typically, all our regional processing labs that we have, our current focus is having collection centers more around the same so that we can give a quick turnaround time of test over there. So this is a mix between all the regions. But in each of the regions, it is more closer to where our regional processing centers are, which are the largest cities.

Okay. And just -- so I don't know the status. That's what I've asked very basic question. On the preventive tests, what would be very rough split between corporate and individual customers? Let's say, fiscal '20 when it was a more normal year.

Sorry, we have not understood your question. Can you please repeat?

Hello?

Yes, sir. You may proceed now.

Yes. So I was asking on the preventive test. When we look at fiscal '20, when you look at the total volumes, if you want to just buffet into 2 parts customer into -- someone who is coming from corporate contract versus someone who is, let's say, booking a test by a phone, what would be the split look like? Like 80%, 20%, 80% individuals, 20% coming to corporate? What does the split look like?

As far as the preventive care profiles are concerned, mostly, we are getting these orders from the individuals. So -- and mostly, we are doing home collections. So corporate customers, if you are asking, it would be very less. Tentatively, the number will be somewhere in the range of 5% to 10%, not more than that.

Sure. That's helpful. And just last clarity on this. When you look at the profile of the customer in your business over the last 2, 3 years, and when you see the traction of preventive test, which age group do you see the most traction is? Is it like people more than 50 years old are getting enrolling for more preventive tests? Or is it more younger generation rolling for it? Which groups are you seeing the more traction?

So mostly, the traction is coming from cities. That is number one, Tier 1 cities. Of late, Tier 2 cities also, we are seeing some good volume. As far as age group is concerned, mostly it is from the middle age group, not from the old-age group, 35 to 55 years of age, you can say.

The next question is from the line of Saurabh Shroff from QRC.

Just going back to this 50 franchisee conduction centers that we are adding, I just wanted to understand, does this mean that we are adding a further layer between us and our end franchises?

Sorry to interrupt sir.

What we -- these are franchisee collection centers, and there is no additional layer. We already have 500 of them. It is the same. The franchisees are our direct contact and patients come to the franchisee. So there is no other layer.

So this additional of 50 is sort of more of the same?

Yes. That's where I said, it has gone up by 10% addition in the last 40 days.

Okay. And the reason to do this is you think that you can provide better local service in terms of turnaround times, et cetera?

It is to further the overall hub-and-spoke model because if you give better accessibility to the patient through a branded center, so a patient can walk into the nearest center and get access to the overall Thyrocare menu. We have a logistics setup, very robust, which goes to every nook and corner of the country, which picks up the sample and brings it to the processing lab. And since all our centers are connected online, the reports are available as soon as the samples are processed in the lab. So this gives better accessibility. And it also helps sweat my machines better at the lab because those -- all those samples rain into our processing labs.

Okay. So basically, between the client and the company, there is just this one sort of franchisee or agent who's doing the collection and then maybe the logistics part of it. Is that fair?

Yes. So we have a logistics system, which just picked up. And the collection centers is where our patients go, and they give their sample there.

Okay. And the second question was on Nueclear a little bit longer term, sort of where do you see, I guess, once, let's say, COVID is over another 3, 6, 9 months, but where do you see that business sort of stabilizing and coming to breakeven and then better? What's the sort of plan there for the next 12, 18 months?

So as far as Nueclear business is concerned, as we have said in the opening commentary, the business has already started coming in. Almost 78% of our business has already revised. Some of the centers like Delhi, Mumbai and Hyderabad are already seeing a surge of up to 30%, 35% in terms of the number of scans which we report. In terms of breakeven, we are not incurring any cash losses. At least in this current quarter, we have not incurred any cash losses. As far as our radiology business that is Nueclear Healthcare Limited is concerned, that is what we have also disclosed in our presentation. So breakeven level already attained as far as Nueclear is concerned, and this -- we think this will continue in the near future, too.

Okay. So this is sustainable and should, if anything, grow from here?

Yes. So pre-COVID period, if you see almost for about 8 quarters, we have seen positive cash flows. Just because of the COVID break, it went into cash losses. And at the moment the business revived. Again, we are seeing cash positive. And this, despite 3 of our centers not functional, and one of our machinery already shifted from a particular location to a new location. So 4 of our machines are not active and running as of now. And still, this is the progress.

We can experience disturbance from the management line. So I'm just going to disconnect and reconnect the management line. Please be on hold. We have the line for the speakers connected now. Sir, you may proceed. We have the next question from the line of Varun Goenka from Nippon.

Yes. My operational questions have been answered. Just 3 things. On our imaging business, have we reconsidered what we were trying to do a year back, trying to sell it to [indiscernible] Dr. Velu or get rid of Thyrocare have the rethought on that side?

So you're talking about Nueclear Healthcare Limited, right?

That's right. That's right.

Okay. So as on 31st March 2019, 31st March 2020, we have done an impairment assessment. That is what we have reported in our numbers, 31st March 2020. Thereafter, we have not assessed actually the progress. We will be doing that again as on 31st March 2021.

But more strategically, what are your thoughts as to having that business within Thyrocare or otherwise?

So as I have said in the earlier answer, we are seeing a good revival as far as Nueclear business is concerned. So the call as to what is to be done with Nueclear business will be decided in our Board meeting for the quarter 4 -- quarter ended 31st March 2021.